Economics and Information Theory

This study reviewed some studies conducted on related party transactions and earnings management. Based on agency theory, agency conflict motivates managers to engage in self-enrichment transactions at the expense of the owners of the firm. Management or concentrated ownership is proposed to deal with this type of agency problem. However, this form of ownership structure came with its problem that give rise to type II agency conflict between controlling owners and minority shareholders. Controlling shareholders use their controlling power to benefit from the insider information and engage in prejudicial related party transactions at the expense of minority shareholders. This paper identified how and why managers or controlling shareholders use related party transaction as a convenient means to perpetrate accrual-based or real activity earnings management. It was recommended that empirical study be conducted to investigate whether disclosure regulation can constrain real-activity management through related party transaction.

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Related Party Transactions and Earnings Management

This study aims to examine if the firms in business groups avoid tax by related party transactions. If other conditions are the same, firms have an incentive to maximize after-tax profits by minimizing tax burden. If the firms are in business groups, they tend to minimize tax at the business group level. It is expected that the level of tax avoidance of both parties of related party transactions will be high if tax is minimized at the business group level as the transactions will be made at a level that can minimize the tax of both the firm that reduces the taxable income through related party transactions and the firm whose taxable income increases. In addition, the effect of being in a Chaebol business group and the effect of the Unfair Related Party Transactions Tax Law on the association with related party transactions and tax avoidance are also examined. According to this study, the firms in business groups avoid tax by related party transactions. It is also found out that tax avoidance by related party transactions is done more aggressively in Chaebol member firms than non-Chaebol firms, while tax avoidance by related party transactions in Chaebol business groups decreases after the implementation of the Unfair Related Party Transactions Tax Law.

Related Party Transactions and Tax Avoidance of Business Groups

En este trabajo se ofrece un marco conceptual y empirico para el analisis de las diferencias existentes entre empresas en cuanto a sus decisiones sobre la composicion de sus esfuerzos en materia de innovacion tecnologica. Utilizando datos para empresas manufactureras espanolas en el periodo 1990-96, el estudio parte del analisis de la decision sobre realizar o no actividades de I+D, para continuar con el estudio de la decision sobre generar o importar tecnologia, y finalizar con el estudio de los factores que determinan la organizacion interna de la I+D frente a la alternativa de su contratacion externa. En contraste con la practica habitual, el metodo econometrico utilizado tiene en cuenta la existencia de nolinealidades en los datos.

Choosing among Alternative Technological Strategies: an Empirical Analysis of Formal Sources of Innovation

Related Party Transactions and Firm Value

Related party transactions (RPTs) are transactions made among affiliated companies in a conglomerate group. Heavy RPT ratio means high level of dependence of a firm on the captive market within a conglomerate group. This may depress the firm’s incentive to invest in RD and the positive relationship between R&D and firm values are negatively moderated by increase in RPTs. Classifying the types of R&D expenditures into research expenses and development expenses, the results are differentiated between them. Evidencing the impact of RPTs on R&D spending and the subsequent effectiveness on firm values, this study helps the related parties to understand the nature of RPTs and conglomerate groups, related to R&D and firm performances, and to make relevant decisions.

Does R&D Expenditure with Heavy Related Party Transactions Harm Firm Value?

Corporate Opacity, Corporate Social Responsibility, and Financial Performance

This paper presents a case of enterprise risk management (ERM) embeddedness in LG Group, globalized conglomerate in Korea. Findings are differentiated from prior studies in two aspects. First, this study focuses on how ERM systems minimize the agency costs between conglomerate headquarters and its affiliated firms. Second, cases of diversified twelve affiliated firms find that COSO ERM framework are to be applied adaptively to entities’ inherent or external conditions as industry, age, management level etc. Those findings might be a practical guidance for most Asian business groups to embed ERM frameworks in conglomerate governances, filling gaps between theoretical COSO manual and practical applications.

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How Does LG Group Embed Enterprise Risk Management (ERM) System In Its Conglomerate Governance To Control Its Affiliated Firms' Risk Events?

본 연구는 COVID-19 팬데믹이 애널리스트 커버리지에 미친 영향을 분석하고 기업의 투자규모에 따라 COVID-19의 영향이 어떻게 달라지는지 검증한다. COVID-19 팬데믹은 생산, 소비, 고용 등 경제 전반의 불확 실성과 자본시장의 변동성을 확대하였다. 이와 함께 경영성과의 불확실성 역시 크게 증가한 상황에서 첫째, 기 업의 이익예측치를 발표하는 애널리스트 수는 유의하게 감소하였다. 이는 경제 외적인 충격이 경영성과의 불확 실성을 높일 때 애널리스트 예측치 정보에 대한 수요보다 애널리스트가 부담하는 예측치 발표 비용이 더 큰 폭 으로 증가한 것을 반영한다. 둘째, COVID-19 팬데믹 시기에 애널리스트 수가 감소하는 현상은 투자규모가 큰 기업에서 더욱 명확히 나타났다. 본 결과는 애널리스트 커버리지 및 투자규모 측정방식을 다변화하여도 일관되 게 관찰되었고, 투자의 영향은 COVID-19 팬데믹으로부터 부정적 타격을 받은 기업에서 주로 나타났다. 또한 애널리스트 수가 증가(감소)한 기업의 이익예측 정확성은 COVID-19 팬데믹 시기에 더 높아졌다(낮아졌다). 이 러한 결과를 통해 본 연구는 COVID-19 팬데믹 시기에 이익예측이 더욱 어려운 기업을 중심으로 애널리스트의 정보공급 활동이 유의하게 둔화된 가운데 애널리스트들은 정확한 이익예측이 가능한 소수의 기업을 위주로 커 버리지를 조정하였음을 시사한다. 

Jungmin Yoo

Papers

Does R&D Expenditure with Heavy Related Party Transactions Harm Firm Value?

Corporate Opacity, Corporate Social Responsibility, and Financial Performance

How Does LG Group Embed Enterprise Risk Management (ERM) System In Its Conglomerate Governance To Control Its Affiliated Firms' Risk Events?

Analyst Coverage in the COVID-19 Pandemic Period, and the Differential Effect of the Corporate Investment

Impact of IFRS adoption on the disclosure of management forecasts by industry concentration